Robin Hood – now even employers back the tax

OK, only the Austrian employers seem to have come out in favour recently, but it’s a start, and their reasons for supporting a financial transactions tax (FTT) are worth others thinking about: they want an FTT rather than a bank levy because it would be more easy to pass the costs of the latter on to consumers (what economists call ‘incidence’). Meanwhile, EurActiv reports that the German finance minister has renewed his call for an EU FTT, and the Belgian EU Presidency, which began on 1 July, wants to table proposals soon.

Christopher Leitl, President of the Austrian Economy Chamber – and a member of the conservative Austrian party OVP – is calling for an FTT rather than a bank levy because they want to crack down on what Lord Turner called ‘socially useless’ activities such as speculative derivative trades. He told EurActiv online magazine:

“I am against pointing fingers but I think we should have a fair tax system that does not only rely on the real economy. …

“A bank levy is a bank customer levy. Those who invest and buy consumer goods and those who should urgently revive the economy will have to carry the burden. That is the wrong way of doing things.

“On the other hand a tax on financial transactions of a certain size – not your daily transfers on your account, but the big sums traded by speculators – should make a contribution to bring the economy back into balance or – as has been discussed on a European level – create a kind of European Monetary Fund.”

Meanwhile, German Finance Minister Wolfgang Schaeuble said on Friday (2 July) that Berlin and Paris would call on the European Commission to submit proposals for a European financial market transaction tax.

“In the next few days I will together with my French colleague call upon the European Commission to submit proposals on a measure for a financial transaction tax.”

And the Belgian Presidency, which began on 1 July 2010 and lasts till the end of the year, is reported to have confirmed that it would be proposing an EU-wide financial transactions tax.

Written by Owen Tudor

I’ve been the Head of the TUC’s European Union and International Relations Department since 2003 and have worked at the TUC since 1984. I’ve been a member of the Health and Safety Commission, the Civil Justice Council, the Social Security Advis…

With a few caveats a FTT looks like a good idea.
1. The incidence must fall on the banks not “normal” customers. This may look relatively straightforward but what’s to stop them increasing charges elsewhere to cover their ‘losses” on a FTT ?
2. It needs to be applied worldwide to stop business simply moving somewhere more favourable.
3. It should be expected the amount raised will be less than forecast. Even though the percentage is small the real money values are big, so it may be that transactions that would have taken place won’t.
4. In the UK the proceeds must be used for balancing the budget and paying down debt, we don’t have the luxury of the fuzzy niceties proposed by the Robin Hood tax people.

Thanks for these points, Tokyo. I think I have an answer for all of them (but forgive the glibness which the blogosphere encourages!)
1. It’s always possible to pass on any tax – the key issue is how you limit that. Putting the tax on trades that don’t immediately cost consumers helps, as does the competition in the sector. Unless they co-ordinate any such increase (ie fix prices as a cartel which would at least potentially be illegal), those passing on the costs would become less competitive than those who choose to swallow the tax.
2. we would prefer a global agreement on this to national action. But experience shows that businesses don’t react to marginal changes in tax in quite that way: the finance sector in London actually grew slightly after Darling’s bonus tax was applied, despite dire warnings of a mass exodus, and the stamp duty on share dealings in the UK (which is a component of a broader FTT) hasn’t prevented London’s growth as a financial centre over the years. You CAN drive business away with taxes, I know, but it’s not a necessary result.
3. Some people support an FTT precisely because it will reduce some types of trading (especially low margin, highly speculative currency transactions) so there will undoubtedly be an impact on the size of the market we’re planning to tax. But we think that we have already built that into our calculations: our projections for the tax take are on the conservative side. Some estimates you will see are therefore much larger than we would expect or claim. And we always TRY to say that the sums raised depend on the precise rate, exclusions, etc.
4. The Robin Hood Tax proposes that half of the money raised should go to domestic uses like paying down the deficit, and they would make such a huge contribution that, together with higher growth and so on, the deficit would not look like such a big problem. But we still support the call to spend the rest on climate change (there’s no point having a balanced budget if the planet has fried) and on global poverty, not least because of the impact that has on our own living standards. As the ILO’s 1944 Philadelphia Declaration says, “poverty anywhere is a threat to prosperity everywhere”, and it’s even more true in a globalised economy.

It’s your decision what bets to make, Squeeze! But the key issue is the length of time involved. The sort of speculative transaction a Robin Hood Tax would disincentivise would be the sort of trades where you buy one second and sell a second (or less – many of these trades are computerised) later. The tax rate on trades of that nature is small in absolute terms, but averaged over a year are phenomenally high. That’s precisely why some like the impact of a Robin Hood Tax – it would make little difference to people trading money, shares etc over long periods of time (generally known as “investors”) but would have a major impact on people who buy only to sell nanonseconds later (often known as “speculators”, although I bet that’s not what they say when they tell their mothers what they do for a living!)